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Long Term Care [An Essential Guide] Part I

Overview and Traditional LTC

With the aging in of the Boomer generation and longevity extending out as a result of medical advances among other things, the need for long term care (LTC) has grown.  Yet of those who enter some form of long term care, only 14% have a planned vehicle to pay for the expensive services.  

For those entering Medicare especially those who have not addressed this impending need this is for you.

What this guide aims to convey is: what has led up to this point, the expected costs of care, what types of care are currently available and at what point does assistance become accessible.

Longevity is the expectation of how long one should expect to live.  There is a huge body of work on what is a moving target. 

In a general sense, age 65 males currently are expected to live to age 83 and females to age 85.  Obviously, many factors such as genetics and lifestyle play into your particular situation. 

What is important to note is that according to experts like Eric Stallard who is quoted in actuarial studies is:

At age 75 one should expect to spend 40 percent of remaining life in a “disabled state”

At age 85 one should expect to spend 60 percent of life in a “disabled state”.

This equals an increase in assisted care in later life with 3-4 years of estimated long-term care need projecting out to even longer terms down the road as longevity improves.

As of 2020 there are over 44 million  enrolled  in Medicare.  This number is expected to double over the next 15 years or so.  What is problematic is the workplace contributors are expected to decrease by 35% over the same period.  Also given the static and some would say decreasing median family real income in the U.S, the relationship for supply dollars into the system and demand for services from the same is not a positive one.

Therefore, expecting a public option LTC solution is unviable in our opinion.   In fact, the real possibility of reduced transitional Medicare services such as skilled nursing or home health care exists without meaningful reform. 

In the current legislative environment we simply are not that confident and believe for those who are able, the matter must be taken in hand individually to avoid a catastrophic purge of estate assets.

Medicare provides no Long-Term Care coverage.

Original Part A & B Medicare provides no Long-Term Care coverage.  Certain Medicare Supplements cover the gaps in hospitalization including skilled nursing services (the latter with a prior hospital stay of 3 days minimum).   

Medicare advantage plans also provide skilled nursing coverage.

Here is where access is important as today older family members are far more likely to be separated by distance from younger generations.   This produces a general movement away from the “child is father to the man” approach to care in later life. 

Moreover, the skills required assisting elders and the time to dedicate, especially for those with severe disabilities are lacking for most family members.  Especially with spousal care the stress physically can result in injury with one unable to perform daily living activities.   Rather than one chronically ill person there are now two.

Longevity Has Created A “Cost Monster”

Longevity has created a cost monster and the supply demand relationship for services shows no sign of abating that; in fact, the lack of quality facilities increases costs down the road.  Genworth, considered at a time one of the most prominent providers of traditional long-term care policies had an excellent projection tool for costs.

Here are some national projections 15 years forward relative to “today’s” costs.

Home Health Aide 

2016 Cost $3,861/month; 2031 Cost $6,015/month

Four-year life cycle costs – $288,720

Nursing Home Care (semi-private room)

2016 Cost $6,844/month; 2031 Cost $10,663/month

Four-year life cycle costs – $511,824

For a private room the life costs go to $575,664

These costs are national averages and you can calculate your local expected costs here.  The four-year life cycle covers both the average for males and females in the environment.  Nursing home stays do tend to be shorter on average but not dramatically.

What Are ADL’s and Why Are They Important?

Long-term care providers use an assessment of the insured’s ability to perform “Activities of Daily Living” or ADLs.  There are six ADLs commonly recognized by the insurers.  They are:

  • Bathing – The ability to clean oneself and perform grooming activities like shaving and brushing teeth.
  • Dressing – The ability to get dressed by oneself without struggling with buttons and zippers.
  • Eating – The ability to feed oneself.
  • Transferring – Being able to either walk or move oneself from a bed to a wheelchair and back again.
  • Toileting – The ability to get on and off the toilet.
  • Continence – The ability to control one’s bladder and bowel functions.

When one experiences a loss of one or more of these ADLs, the insurance company sends a medical professional, usually an RN to the insured’s home to assess their ability to perform ADLs and qualify for benefit triggers. 

The most common trigger activating benefits in an LTC policy is the loss of two ADLs.  In addition, there are tasks that are more complicated that may be measured to determine whether assistance is required and to what extent.  These are “Instrumental Activities of Daily Living” and include:

  • Using a telephone
  • Managing medications
  • Preparing meals
  • Housekeeping
  • Managing personal finances
  • Shopping for groceries or clothes
  • Accessing transportation
  • Caring for pets

One particular cause that triggers the LTC need that must be addressed separately is dementia, including Alzheimer’s disease and similar ailments.

The tendency for sufferers of these illnesses to have long term care needs far protracted beyond the average is well documented and could go out to ten years or more, averaging eight years.

The outcome is asset depletion as those who rely on reserves to cover these costs is unsustainable for all but the wealthy.  The costs can be somewhat measured down by care from family members, assisted living part-time “day care” options.  

Regardless the need to address not only the cost but the drain on assets is vital to those without a current LTC option or an effective plan to shelter assets from what is known as “Recapture”.

What is Recapture?

Recapture is an IRS rule-related to Medicaid and qualifying conditions to receive Medicaid for payments towards a nursing home facility.  Although there are exemptions to recapture, generally the beneficiary must endure a five year look back on any transfer of assets.  

This is obviously to prevent a person from entering a nursing home on Monday, transferring assets on Tuesday and filing for Medicaid on Wednesday.  We encourage as part of an ongoing retirement plan the option of giving from “warm hands” as it can be very beneficial in keeping wealth in the family. 

Essential Medicaid planning goes hand in glove with long term care planning for exactly this reason.   It involves working together with a competent elder law attorney to plan and develop options.

Building Blocks Of “Traditional” LTC Insurance

A growing opinion regarding  traditional long-term care plan is a solution reserved for the affluent.  There are fewer carriers in the market, premiums have been driven upward significantly and underwriting standards for certain risk classes tightened.

For those who have an interest in traditional Long-Term Care insurance here is an overview of the building blocks of most plans.  We will go over alternative long-term care options in Part II of this post.

  • Policy Limits – This is a total that pays benefits based on either a multiplier of a monthly maximum (e.g. 36 months x $2000/month) or alternatively, a simple pooled benefit. A “pooled” benefit is the maximum total payout like a face amount of a life insurance policy.
  • Policy Limit Options – In the multiplied limit this pays out over a time period anywhere generally from 24 – 60 months. The pooled limit pays out in increments of $500 ($500, $1000, $1500 etc.) up to the pooled limit.
  • Maximum Monthly Benefit – In both options this is a fixed dollar amount that in the pooled benefit may have a percentage range of the total policy limit.
  • Elimination Period – This is the time frame that must elapse prior to benefits kicking in. Generally, this is anywhere from 0 – 365 calendar days.  Obviously the longer the Elimination Period, the lower the premium.
  • Cash Benefit – This is a percentage paid out in cash for home health care and a percentage of the overall health care benefit. This is beneficial for qualified caretaker family members.
  • Nursing Home Benefit – Just as you would imagine and 100% of the maximum monthly benefi
  • Assisted Living Facility Benefit and Home Health Care Benefit – This is a selected percentage paid out to licensed caretakers or Assisted Living Facilities up to 100% of the monthly maximum benefit.
  • Adult Day Care Benefit – Pays out similarly to the above.
  • Stay at Home Benefits – This covers caretaker training, Durable Medical Equipment, Home Modifications and Medical Alert Systems. It could be up to twice the monthly maximum benefit understanding of course that these are fixed costs not generally recurring.

Other benefits include but are not limited to Bed Reservations in a Nursing Home or Assisted Living Facility, Respite & Hospice Care, and International Benefits in some cases.

Other Limitations, Underwriting and Cost of Coverage

There are issue age limitations and these plan types cannot usually be held in a qualified money container like an IRA, Roth, 403b, TSP or 401k for example.

Underwriting as we mentioned is by health class with best class getting discounted premiums.  Medical records, pharmaceutical history, a Personal Health Interview (PHI) and in some cases, a Cognitive Assessment based on age or certain family history are required.

Some companies will offer a Return of Premium (less claims) for those who have concerns about ever needing LTC.  Usually this is available only to those who enroll prior to 65. 

Depending on health class and options these plans for a reasonable level of coverage can be expected to cost between $300- $500/month for an individual on an ongoing basis.  There is some discounting for couples enrolling in the same plan.

Plainly speaking about traditional long-term care; it’s expensive.  However, when one considers the evaporation of an estate and the lack of options as resources dwindle, if the means are there then it merits serious consideration. 

Having long term care coverage in a strategy with Medicaid planning (the latter again requiring the need for competent specialized legal counsel), can preserve the estate for the surviving spouse and/or heirs while affording better lifestyle choices when our health dictates the need for ongoing professional help.

In Part II of this topic we will address alternative forms of long term care, dispel some myths and provide additional options for those on a tight budget.  If you would like more information on this topic email us at info@termlifemall.com.

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